BP update+

Mesoblast (MSB)
MSB extends Celgene’s right of first
refusal by 6 months
Recommendation
Buy (unchanged)
Price
$3.41
Valuation
$9.01 (unchanged)
Risk
Speculative
Analyst

BELL POTTER SECURITIES LIMITED

Page 1
(1m) (3m) (12m)
Price (A$) 3.21 3.84 3.94
Absolute (%) 0.31 -16.15 -18.27
Rel market (%) -2.85 -11.50 -19.14
Speculative
See Key risks on Page 7 &
Biotechnology Risk Warning on Page 9
Speculative securities may not be
suitable for Retail clients
Celgene’s new expiry date for first right of refusal is April’16
MSB and Celgene have extended their April’15 agreement, giving Celgene another 6
month right of first refusal to license MSB’s products related to selected disease fields
namely Graft versus Host Disease (Ex Japan), certain Oncology (cancer) indications,
inflammatory bowel diseases (such as Crohn’s disease) and organ transplant
rejection. There are no monetary terms attached to the extension. The new expiry date
for Celgene’s right of refusal is 15th April’16. Celgene continues to keep its 4.5% stake
in MSB which it acquired in April 2015 for a consideration of A$58.5m.
Extension suggests continued interest from Celgene in MSB
The key asset under the agreement is MSB’s MSC-100-IV for acute GvHD and
Crohn’s. Celgene now has another 6 months to thwart the attempts of any other
bidders to license this asset. The absence of any ‘extension of agreement’ payment,
suggests to us that it is more a gesture of faith by MSB to potentially allow more time
for active negotiations between them to reach a conclusion. We also view the
extension as a sign of continued interest from Celgene in MSB’s pipeline. It also raises
the possibility that the negotiations have taken a more complex turn, possibly due to
potential inclusion of other elements from MSB’s pipeline which were not part of the
original agreement. We expect the ongoing Phase III GvHD trial to complete in CY16.
We believe competitive interest for GvHD (Ex Japan) will increase as the trial nears
completion and are optimistic that Celgene or another interested party may be
convinced to pay for GvHD close to our speculated deal value of US$410m. The bulk
of the value in our deal speculation is attached to the access MSC-100-IV provides to
FDA’s valuable rare paediatric disease priority review voucher, which has been selling
recently for US$245m to US$350m.
Maintain Buy and valuation of $9.01
There are no changes to our earnings forecasts. We retain our Buy recommendation
and valuation of A$9.01/sh. Key catalysts include results from Phase II trial for RA,
launch of Temcell in Japan, interim analysis from Phase III CHF trial in CY1Q16,
potential deal in next 12 months on low back pain and diabetic kidney disease assets. Cheers Vin